The influence of the circular economy towards more sustainable businesses can be seen across a range of business areas. Sustainable businesses is a prolific theme. In some areas this influence is more evidently seen as an underlying issue, in others there is some blur on the real implications of circular economy practices to businesses. Nevertheless many practices towards circularity or greater circularity have not been clearly defined. This blog will outline some of the key drivers of the circular economy for businesses.
1. Strategic Planning
The adoption of circular economy principles enables companies to close resource loops, providing ways to align the company’s strategic planning with more circular principles. Circular economy functions as a motivator for companies that wish to adopt more sustainable business models. A company may, for instance, outline its supply chain management practices to maximize resource efficiency through the reduction, reuse, and recycling of waste and attain environmental goals. Organizations may strategically develop their business models to attain greater circularity within their supply chains, by leading their suppliers into adopting practices such as the recycling of products and reuse of materials/resources, in order to make circular business models fully viable.
2. Cost Management
When it comes to cost management, the adoption of circular economy principles and practices plays a significant role, as it allows companies to turn products which are at the end of one of their life cycles into resources for the conception of new or other products. This allows for the minimization of waste and simultaneously decreases the need for inputs of virgin material. In addition to that, resource scarcity causes prices to go up and become more volatile, negatively impacting a company’s value creation and capture.
Undoubtedly, changing from linear to circular business models, both efficiently and sustainably, may require investments (of many sorts) from all parties involved in
the company's network. Although barriers for adopting such practices are to be considered, such as potentially high upfront investment costs for circular economy projects and low prices of virgin material caused mainly by greater supply, there are several cases in which the results of its implementation turn out to be favorable in more than one expected way. Additionally, price fluctuations for virgin materials can also pose a risk to companies, as seen in the spike of raw material prices caused by the Ukraine conflict.
3. Quality Management
When going circular, there is still an inherent need for quality in products and processes. Companies need a shift in policy that enables protecting the environment while promoting business models that assure manufacturing and production quality and also allowing to maintain the competitiveness of a business, maintaining customer-oriented and differentiation strategies.
It is important to point out the main material flows in quality management and the need to have a quality management system that is both more integrated with the circular economy and more mature. Circular economy can foster quality improvement in processes for the performance of closed-loop systems to be considered of quality, nutrients, water, soil, wastes, and other materials must be selected and approved based on certain quality standards.
4. Environmental Management
It has also been reported that the principles of circular economy have a close relationship with a company’s environmental management and performance, and, on the one hand, it is argued that more circular systems are able to help prevent negative impacts to the environment. However, on the other hand, one must not neglect the consequences of rebound effects, which if not accounted for might offset the impacts prevented by the intended strategy and impact the sustainability of more circular systems.
Value chain logic overemphasizes economic goals at the detriment of social and environmental goals. On the other hand, more intensive environmental management tools have been used. The development of products and processes with greater environmental awareness forces companies to adopt more sustainable measures. This means that companies need to use tools that can evaluate processes from an environmental standpoint, in order to quantify potential environmental impacts.
5. Process Management
Within the circular economy, processes might be reengineered so as to extend product life, reduce environmental impacts, or increase financial results. On those grounds, much thought is put onto strategies for product and resource recovery, thus many waste management processes/strategies, for instance, are founded on the circularity concept. To internalize circularity, many processes have been going through redesign to facilitate aspects of (e.g.) reusing, recycling, and transporting, as for logistics and reverse logistics. Management of processes might be affected with regards to reengineering production processes in order to make them more circular (e.g., restructuring facilities), or even switching from one set of operations to another (production based on virgin inputs versus production based on non-virgin inputs).
6. Logistics and Reverse Logistics
In the context of the circular economy, logistics (and reverse logistics) management assists in closing, slowing, and narrowing supply chain loops, including by building partnerships to promote reverse logistics practices, in order to enable recovery strategies such as recycling and remanufacturing. Reverse logistics are considered to be a major component of the functioning of a circular economy by tackling the concern that post-use waste must be transferred back upstream so that they can be re-processed, thus recovering their value, builds on the concept of take-back systems. In this regard, whether wanted or not, the final consumer is the agent who controls the flows of end-of-life processes. They are the agents who can make or break such reverse systems, thus the importance of sensitizing customers and encouraging a change in culture in order to embrace a circular behavior.
7. Service Management
Circular economy now has a more business-oriented perspective. In this sense, service companies are in a strategic place, between manufacturers and end-users, therefore, they play an important role in the transition to a circular economy. Many times, efforts are devoted to major changes in the processing of products in order to attenuate some sort of negative impact, while parallel potential in services is often neglected. The circular economy is considered holistic and adaptive; in this sense, the use of Product Service Systems (PSS), a model that uses ecoefficient services with the potential to replicate and compete with the 'fast fashion' industry, has been increasingly observed and these systems have been pointed as great enablers of a circular economy and have been signaled as a path for greater sustainability.
8. Research and Development
Research and development has been addressed as an attempt to explore competitive advantages and innovation in order to compete in an increasingly globalized environment. With that regard, ecodesign and life cycle assessment-based research and development allows selecting alternative materials, seeking better economic and environmental performance throughout the whole life cycle of products. It is important to notice that ecodesign does not apply exclusively to product development or even to product-oriented organizations. Service oriented companies can employ ecodesign to their business models in order to implement circular economy into their daily practices. Product design implications reach a range of fields, contributing to greater economic sustainability in production chains by improving product life cycles, making them more manageable, and bringing innovation.
8. Data & Optimization
Key to the entire implementation and efficient running of the circular economy is the need for accurate real-time data on products and waste materials across the entire value chain. Tracking flows of products and waste from their source, either businesses or households, and up the layers of the value chain is essential to measure the effectiveness of any circular economy strategy. In addition, optimizing assets and infrastructure through data optimization can be a significant driver of circular economy models through cost reduction and efficiency increases. In order to successfully deliver on circular economy strategies, the tools and systems for data collection and process optimization need to be included.
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